Q. I booked a commercial space which is under construction based on a stamp paper agreement (not registered) with the developer in Sept 2012. I received allotment letter mentioning the space number in Oct 2012 when it was still under construction. Before receiving any possession letter from the developer, I transferred my right and relinquished my interest in July 2016 to a third-party by a registered deed of conveyance where I became a confirming party. The gain was around Rs 22 lakh. Is this a long-term or short-term capital gain? Please mention the section of I-T Act or circular number of CBDT for the support. —SK BENERJEE
A. Since the period of holding is more than more than 36 months before the date of transfer of the rights in immovable property, the resultant gain will be chargeable to tax as long-term capital gains. Section 2(14) of the Income Tax Act,1961, defines the word 'capital asset'. The right in an immovable property falls within the definition of capital asset. You will be entitled to the benefit of indexation also and the difference between the sale consideration and the indexed cost of acquisition will be chargeable to tax as longterm capital gains.
Q. My mother purchased a house along with servants' quarters in South Delhi in 2013 for Rs 1.8 crore. She expired in 2015. As per her duly registered will, I and my deceased sister's husband are joint owners of above immoveable property. We have received an offer for purchase of the property for Rs 2.75 crore. The sale consideration will be shared equally between both of us. Kindly clarify whether there would be capital gains tax on the sale consideration? Steps to avoid such tax? —VINITA SRIVASTAVA
A. You and your sister's husband will be liable to pay tax on capital gains individually in the same proportion in which you share the sale consideration of the property. Around 50% of the acquisition cost of your mother will be deemed to be the cost in your hands for the purpose of computing capital gains. If the property is held by you for more than 3 years from the date of purchase by your mother, then benefit of indexation of cost will be available and the resultant long-term capital gains will be chargeable to tax at 20%. Otherwise the resultant capital gains will be short-term capital gains chargeable to tax at 30%. You may claim exemption by investing into a new residential house u/s.54 or investment in specified bonds u/s. 54EC of the I-T Act, 1961 subject to conditions specified in the respective sections against the long-term capital gains chargeable to tax on the sale of the property at South Delhi.